Health Spending in 2009 Edges Up 4%, Consumes Record Share of GDP

By Katherine Hobson

If you’re concerned about rising health-care costs, we have mixed news for you. Figures out from the actuaries at CMS, the government body that runs Medicare and Medicaid, show that health spending grew up by just 4% last year in 2009, the smallest increase in 50 years.

(That’s the good news.)

However, because the overall economy fared so poorly that year, health spending totaled 17.6% of GDP in 2009. That’s one percentage point higher than in 2008, which showed similar spending trends. And that increase is the biggest seen since these figures started being tracked in 1960.

Many consumers decreased their use of health-care goods and services partly because they had lost employer-based private health insurance coverage, and partly because their household income had declined.

Offsetting declines in private health-insurance spending, spending on structures and equipment and out-of-pocket spending was an increase in Medicaid spending. Some 3.5 million people were added to the Medicaid rolls in 2009. Read the WSJ story for more on the debate over higher Medicaid spending. Spending on prescription drugs also rose.

The WSJ has written about an apparent decrease in consumers’ use of medical services as they pick up an increased share of their costs. Consumer out-of-pocket spending rose just 0.4% in 2009, with drops in spending on dental services, nursing-care facilities and physician and clinical services.

Comments (5 of 11)

Value for dollar points are valid, however, some economists view increases in health care spending as a neutral, if not positive, impact on the economy. Increased health care spending, in this view, is seen as improving access to new health care technologies and treatments. Not necessarily bad for the economy or the country.

One of California's largest health insurers - Blue Shield - announced plans to hike its premiums by as much as 59%.

The jacked up premium rates are set to take effect on March 1, pending review from state insurance regulators. The move impacts 193,000 Blue Shield policy holders.

The company, a member of the Blue Cross Blue Shield Association with 3.3 million members, which announced the move late Thursday, stressed that its decision has "almost nothing to do with the federal health reform law" and that ultimately the law will help slow down health care costs.

But responding to this most recent increase the company said, "our individual market medical costs are rising rapidly due to higher provider prices, increased utilization, and the fact that healthier people are dropping coverage during a bad economy," the company said.

Despite the steep double-digit hike, the insurer maintained it still expects to lose tens of millions of dollars on its individual healthcare business in both 2010 and 2011.

Right to be concerned: "The people of California have a right to be concerned when they see this kind of rate increase month after month," Health and Human Services Secretary Kathleen Sebelius, said in a statement Thursday.

Sebelius said the agency has reached out to California Insurance Commissioner Dave Jones as well.

"We stand ready to assist him and the people of California in any way that we can," she said.

Despite health reform, that assistance will be limited. The federal government does not have the authority to review and strike down unreasonable rate increase requests.

Historically, that authority lies with individual states. But some states don't have any rate review process at all and insurers can hike rates as much as they want.

Under California law, the state insurance commissioner has no authority to reject excessive premium increases.

"Many Californians will no doubt be surprised to learn that the Insurance Commissioner does not have the legal authority to reject excessive health insurance premium increases," California Commissioner Dave Jones said in a statement Thursday.

Instead, Jones has asked Blue Shield of California to delay the implementation of the rate so that he has the opportunity to ensure that the increase has been thoroughly reviewed.

"I find it stunning that Blue Shield would seek to impose such massive premium increases on policyholders during these troubling economic times,"Jones said in a statement Thursday.

"These premium increases will impose significant financial burdens on struggling families and, in some cases, will lead to the loss of health care coverage altogether," he said.

Health reform has tried to stymie these big rate hikes.

For instance, health reform mandates that insurance companies spend 80% to 85% of the premiums they collect on medical care instead of toward their own profits and overhead costs.

However, that new rule doesn't seem to have affected Blue Shield's move. The company said that the new rates "meet the federal requirement."

Other deterrents include: $250 million in grants to states to set up a rate review process if they don't have one, and to further strengthen it if they already do. About $46 million of that amount has already been awarded to states, according to HHS.

Beginning July 1, if an insurer proposes a 10% or higher rate hike, it will get extra scrutiny from state regulators as well as the federal government.

In 2014, when health exchanges are set to open, states will have the authority to ban insurers with a questionable history of rate increase from participating in the exchanges.

Sebelius, alluding to GOP efforts to repeal health reform, warned that without health reform, "the practice of insurers imposing these kinds of rate increases without public scrutiny would be the wave of the future."

"Absolutely outrageous!" Doug Heller, executive director of consumer advocacy group Consumer Watchdog, said Blue Shield's move is shocking and that state regulators have their hand tied.

"It is absolutely outrageous that regulators in California and in most states have no power to turn back excessive hikes in health insurance premiums," Heller said.

"There's such a push to get every individual in this country health insurance and a mandate that everyone must have health insurance, yet regulators have their hands tied and can't limit these exorbitant premiums increases," he said.

Since California has the largest number of uninsured people of any single state, about 7 million, Heller said the state cannot afford to have even those people who have insurance drop it be cause of rising premiums.

"By jacking up rates, insurers are pushing people off their rolls and are undermining efforts to get more consumers access to healthcare," he said. "Insurance companies only want customers who can pay the premiums but don't want to pay their claims."

4:48 am January 7, 2011

Health Care Provider - Private Practice wrote :

Value for dollar points are valid, however, some economists view increases in health care spending as a neutral, if not positive, impact on the economy. Increased health care spending, in this view, is seen as improving access to new health care technologies and treatments. Not necessarily bad for the economy or the country.

11:39 pm January 6, 2011

Doctor Zhivago wrote :

We all know that each doctor on average can save $.25 million per year by practicing good medicine, i.e. ordering the right tests and treatments at the right time for the individual patient. Total: $25 billion per year. They will do it if they were paid to practice in such a way. Right now, the government reinforces the inflationary forces by fee controls and coordinating cookbook medical care by EHR.

12:20 pm January 6, 2011

Jo wrote :

Medicare has put in a new patient exam plus a yearly physical.

You can go to medicare.gov to learn the details, but it is not just a simple physical. It includes mammograms etc. These are free to those on medicare.

I have been to several doctors just to get my different parts of my physical and I go to another in a couple of weeks.